Doctors, lawyers, business owners, they’re making great money. That’s not the problem. They don’t need more money. What they need is tax relief. The biggest misconception is you need to do this first before you invest with somebody else. They focus on the IRR or the internal rate of return. They get really giddy about this and they forget to think about what the downside is. When you’re looking at your syndicator, you’re looking at the person you’re looking to partner with, you really need their track record, their past deals are way more important than their future deals. The first thing I look for in a market is wage growth. And a lot of people go, “Well, don’t you want job growth?” Well, job growth is important, but if the wages aren’t growing.

Shannon, thank you so much for coming on, taking the time. I know you’ve done hundreds of transactions and a lot of years spent in the game, so I appreciate you for taking the time and coming in with us. I am curious to kind of go back and see how you got into real estate in the first place.

Well, I didn’t really have a choice. I mean, my father was a builder and developer. My mother was a third generation real estate broker, and I came up in the business. And honestly, when I was 18 years old, I hated the business and I went to college for a semester, and I realized that that wasn’t going to get me anywhere that I wanted to go. So I came back and I started building houses. I realized very quickly that that was hard to scale. And so I transitioned my business into commercial construction. And from there, we’ve done over $450 million worth of construction and development. Like you said, hundreds of transactions. We’ve syndicated over $70 million in investor capital, and we are in the process right now on about $65 million of new construction.

When it comes to your ideal client, as far as people that are investing in your business, what does that look like and what are the benefits to them that make it so enticing?

Essentially, there are three types of real estate investors. Let’s call it three stages. There’s the guy that has his first $100,000 to invest. He’s new. He typically is younger. He’s hungry, and he needs to get to the place where he has a sizable nest egg. So for him, investing in development deals is really, really good because they’re not cashflow. They’re high appreciation. The second investor group that we have is typically the 35 to 55-year-old professional, doctors, lawyers, business owners. They’re making great money. That’s not the problem. They don’t need more money. What they need is tax relief because they’re getting killed every April 15th. They have a mountain of tax bills that they have to pay because they’re making great money. Well, if we can help them strategize how to use bonus depreciation, how to use 1031s, how to use opportunity zones, how to use the tax code as a playbook, not a penal code, to where they can take advantage of their high income years to stack things away that maybe start out at a three to 5% annual cash on cash return, but five, seven, eight years from now, those are producing 10 and 12% cash on cash, and they’ve taken the depreciation and applied that to their current year investment or the current investment year to mitigate those taxes. So now, if you just take this example, you’re making a half a million bucks a year, you’re going to slice off between 150 and $250,000 for Uncle Sam. If I can show you how to pay Uncle Sam less than 50 grand, that really gives you $200,000 more to invest, which means that your finish line for retirement is even sooner. And then a decade from now, when that cashflow is really strong and you are now no longer needing your JOB, it really becomes a benefit. And the third type of investor is someone that has already accumulated that pile of cash. They’ve got three, four, $5 million, and they’re looking to ride off into the sunset and they don’t want to mess with tenants, toilets, and trash. They don’t want to get collection calls or be involved in collection calls for people that didn’t pay the rent. Those people want a income stream. And the beautiful thing about real estate is that that income stream continues while the asset continues to become more valuable. So if you look at this and you say, “Hey, I bought a million dollar property. In 10 years, it should be worth a million three, a million five. And in the meantime, I’ve also received rents the whole time.” So it’s very different than a 401k where you put $3 million into a 401k and hope you die before you run out of money. Whereas if you put your money into real estate or real assets that produce rents, your value continues to grow while somebody else pays off the mortgage, pays the tax bill, and you’ve taken all the tax benefits.

What do you think the main misconception is from most of the people that you talk to that have a job but are looking to invest? What do you think the most common one is?

There’s two really common ones. One is the Dave Ramsey lifestyle where debt is terrible. Debt is something to be terrified of and you should run. There is good debt and there’s bad debt, as Kiyosaki says. But I think the biggest misconception is the misconception that you need to do this first before you invest with somebody else. That’s like going to the doctor and he says, “Hey, you know what? You’ve got a heart condition. So you go home and you become a heart surgeon in order to operate on yourself. You don’t need to get good at changing out a water heater or screening tenants to become a real estate investor. It’s a team sport and it can be, and it should be because you want to partner with people that are experts in the area instead of going out as a newbie and getting your face smashed in with putting the wrong tenant in there, trying to manage the properties on the weekends, eating up all your spare time, all of the mistakes that new investors make so that you can quote unquote, know how the game works.”

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What would you say to someone that is looking to partner and find that person? Because there’s a lot of people that claim that they’re doing something in the space that might not be doing exactly what they’re saying. So what are some questions or something that you would ask someone to know that they’re the right person for that job?

Well, first of all, anybody that’s been in the real estate space for any length of time has had deals that haven’t gone per plan. If they don’t have any experience with a deal that’s gone sideways, I forget who said it, but everybody’s got to. I think it was Mike Tyson said, everybody’s got a plan until they get punched in the face. Well, everybody’s got a plan for real estate. You buy real estate, you hold real estate, the rents come in, and then you sell real estate later for a lot more money. But there’s a lot that happens in between there that can be that punch in the face. A tenant that trashes your property, a tenant that has liens filed against your property, a project that doesn’t get completed on time or has cost overruns, interest rate changes. There’s a lot of that that goes on. And the reality is if you’re talking to someone, their successes are important, but their longevity in the game, their difficult projects and how they solve them are really, I think, the most important thing because that’s the thing that a veteran has that is the experience that you’re paying for. It’s back to the heart surgeon. That’s why do you go to a person that is very specialized in what you’re wanting, that does that for a living, does it all day, every day, has the right contacts, has the right experience, has dealt with things not working out, and they’ve come up with the right solutions. And often they’ve come up with the wrong solution first and had to get to the right solution later because of the things that they learned along the road.

Why do you think so many newbie or just getting into real estate investors overlook that piece of a JV deal or finding, you wouldn’t even call it a mentor, like a partner or something of that sort? Why do you think so many people overlook that piece?

I think a lot of people, they go to a seminar, they get the rose-colored glasses put on. They focus on the IRR or the internal rate of return. They get really giddy about this and they forget to think about what the downside is. We see this with people that get involved with financial planners all the time. They’re not getting the results they want, but the financial planner continues to manage their money, continues to work in their 401ks, and they’re not getting anywhere. It’s not performing like they want it to, but they don’t know what is a good or a bad plan. And so much about. All markets are cyclical. I mean, we’re seeing silver right now at $110 an ounce. We saw that in 08 when silver went from $20 an ounce to $40 an ounce. Now we saw it go from $30 an ounce to $90 an ounce. These are cycles in the market. There’s cycles in real estate. There’s cycles in the stock market. And knowing what part of the cycle you’re in is part of what a veteran will know that you won’t. We saw people be way more excited about getting involved in real estate development in 22 when prices were at record highs, when cap rates were at record lows, and they got so excited about that when in reality they should be ecstatic about the real estate market now. Why? Because cap rates have expanded. Well, that means you’re getting more value for your dollar. Interest rates are higher, sure. But that also brings down the price of the asset and you’re getting a better deal and interest rates are not forever. Interest rates will constantly change. And so when you really look at it where newbies get excited is in the hype. In the, I’m learning this new concept. I mean, if you’ve got a friend that’s learning to play guitar, that’s all he wants to talk about is I’m learning this. Oh man, I could play this song now. It’s like, I don’t care. I’m not into playing guitar. But with real estate, I think a lot of people get into the hype and they forget to ask about the reality of what happens. And when you see massive companies like BlackRock and Vanguard all being involved in real estate, a lot of times they’re buying the hype that they’re creating.

What would you say to a newbie or someone looking to get into investing? You mentioned finding someone. Is there anything else that you would tell that newbie investor or someone getting into it to kind of pave the road or help them have the road be a little more smooth?

So one of the things that a lot of people. I’ll give an example from when I first started out. My very first syndication, I was trying to raise $1.8 million and it took me five months to raise that much money. And part of the reason I learned later was because I put out the real return. I put out the amount that it actually ultimately returned, which is about 27%. And people thought that was too fantastical to believe. But that’s exactly what a PPM is. It’s a future look at what the asset should do. Well, it’s a storyline. It’s not real until five years later. So when you’re looking at your syndicator, you’re looking at the person you’re looking to partner with, you really need their track record, their past deals are way more important than their future deals. Because I could literally, we call it in our business, we call it pencil whipping your spreadsheet. I can make my spreadsheet say whatever I want. The problem is marrying that up with reality five years from now, seven years from now. How do I know that what I’m saying will happen actually has a snowball’s chance in hell to happen is experience. I can’t sit there and say that I can produce a 12% return based on not having run the cycle before, not having been in a deal and gotten out of a deal, not having gone through tax code changes and interest rate changes. I could say I could get a 31%. I could say I could get a five. Where is the blend of where the rubber meets the road that I can actually action on and get that done so that at the end of the day when we exit, we’ve navigated the pitfalls and we’ve still gotten to an IRR that we promised. Because it’s speculation. It’s not a given that this is a for sure 19%. Right.

When it comes to finding your deals, what are some key strategies that you’re using right now to actually go out and find your deals?

So the first thing I look for in a market is wage growth. And a lot of people go, “Well, don’t you want job growth?” Well, job growth is important, but if the wages aren’t growing, how am I going to charge more rent? See, because my property becomes worth more money when you pay me more in rent.

Well,

If we’re in a place like Oklahoma City where wage growth isn’t happening, I have a friend of mine that’s got houses he’s had in the Oklahoma area for almost two decades, and he’s getting a really fantastic cash on cash return, like 12% cash on cash return. But his houses are worth 15% more than he bought them for two decades agoBecause Of the environment he’s in. There’s no more wage growth. So wage growth is number one. Number two, you have to be in landlord-friendly states. California, Oregon, Washington, New York, New Jersey, absolute no-go zones. Because the regulations are against the landlord. So anytime you look at this, if you own property in California, you could be over a year to get a non-paying tenant out. Here in Idaho, I can have you out in about four weeks, three and a half. That’s what I need. I need to get you out and I need to get the new person in because my whole deal is I’m here to collect rent. And so being in those kinds of places, landlord-friendly states, wage growth areas, those will attract investors. Those will attract people creating new product for tenants to live in, rehabbing old product. Those will be vibrant markets, and those will be hot areas. Phoenix is still a good market, even though they’ve had some rent stagnation. We really like Florida as well. Texas is great. Idaho’s great. You’re looking for areas that are growing, that new industry is coming in and wages are going up.

Yeah, I love it. I love it. What mistakes do you often see investors make that you think could be really easily avoided?

I see investors make an investment without thinking about the tax implications on it. Warren Buffet said, “It’s not how much money you make, it’s how much money you keep.” And the biggest pig at the trough is Uncle Sam. So if we can do our best to eliminate him, the average investor that we have is a taxpayer in the 30 plus percent tax bracket. Now, if I can knock them down, I can save them anywhere from 20 to 30% of the income they made at their JOB this year. Well, it’s really hard to find an investment out there that’s going to give you a 20% return year one. But if you pay attention to the tax code and the way that you enter the deal, you’re going to find that you will get more benefit out of that than the deal itself more than likely in year one.

On most of your deals, can you fully bonus depreciate the whole thing in year one or is that.

Typically, we like to get our investors to the place of at least 70 to 85% of the money that they put in the deal is they’re able to claim that in bonus depreciation. So if you put a hundred grand in the deal, you’re going to receive a 75 to $85,000 bonus depreciation on that deal year one. So really when you look at that, let’s just say you made a half a million bucks this year, you put $100,000 into one of our deals. Uncle Sam is going to look at that and say, “Well, you only made 415,000 this year.” So the $100,000, not only did you defer it to create a passive income that’s taxed at 18 to 20% rather than your 35 to 45%, but you’ve also lowered the tax rate on what’s coming back to you. Now you’re

Getting

A five to 7% cash on cash return during the life of the investment. That’s going to be taxed at 20%. So there’s another 10% savings on what’s coming back. Then when you sell the property in three to five years, you have another tax event. Let’s say you got into the property, your $100,000 investment became worth $200,000 because we’re doing podcast math and we want easy stuff here. You have $100,000 in gain. But instead of the $100,000 in gain that you would have at your job at 35%, you’re only getting taxed at 20% on capital gains. So even then, you’re still saving 10% on a hundred grand. So it’s very, very important that you understand how to get into the deal before you get into the deal. Do you want to get in as a single person? Do you want to get in as an LLC? Do you want to get in through a self-directed IRA? Do you want to do a Roth rollover conversion with that IRA? All of those factors play in very, very huge into the strategy of becoming an Elon Musk or a Jeff Bezos that doesn’t have a tax bill.

Let’s say, so three to five years, you take out that 100K, turn into 200K. Can you bur that into something else and not pay taxes on the.

That’s the beauty of a 1031. So you get into a deal, let’s say that you’re in a syndication with me and there’s you and 20 other investors, and we come to the end of the deal and we’re ready to do something else. We have about a 98% in reinvest rate. So most of our investors, they look at it and they go, “Hey, you did what you said you’re going to do the first time. Let’s go ahead and do it the second time.” But we do have those that want to go do something else. Well, we can do what’s called a stop and drop. It’s just what we call it. But what we would do is we would say, “Hey, Billy, you’re going to…” It was the LPs in the deal. Now it’s the LPs and Billy Smith. And then when we sell, everybody sells. We have a power of attorney, so Billy can’t do anything funky.But now Billy is on his own, so he can go 1031 into something else as long as he’s with an accommodator and takes care of that process before. So you can definitely roll that. And we see a lot of investors that have come in with us. We’re kind of an open kimono. So if you want to know what’s going on, you want to learn how we do things, we’re more than happy to share all that with you. And we’ve actually had some that have now moved to a place where they’re doing their own deals and they’re getting out through a 1031 stop and drop and they’re going into their own deals and moving on and growing. It’s fantastic to see.

Yeah, I love it. I love it. A lot of people look at the word success. They define it differently. They strive for it differently. They measure it differently. How would you say you define the word success? How do you strive for it and how do you measure it in your day-to-day?

I think the world of investing in entrepreneurship is kind of like being blindfolded, running down a hallway filled with people holding wiffle ball bats. And so I think being successful is still being around. I think I’ve seen people that raised more money, made more money than me, but they’re not here anymore. So were they successful? They had this great idea. They used a network and they’re bankrupt now. So for me, success is creating the kind of lifestyle that you want from the hard work that you got to put in anywhere. And a lot of people look at it and go, wow, he’s really successful. He does this or he has that. I think it’s back to, are you getting what you want out of life? And is life treating you the way that you want it to after putting in the work that’s required? And I think a lot of people want to circumvent the work and just get to the success.

Yeah, I love it. Well, what’s the biggest change that you’re seeing in real estate right now?

I think it’s an elimination of the non-qualified participants. Like I said, we saw a lot of people, and we’ve talked to a lot of our investors who’ve gotten involved with other people who didn’t have experience. They went to this three-day seminar, they learned, they got the spreadsheets, they underwrote the deals. They went into purchasing in adversarial conditions, putting up non-refundable earnest monies, waiving inspection contingencies, all the kinds of crazy stuff. And now they’re nowhere to be found. So I think you’re seeing a reconsolidation going back to the OGs that knew what they were doing that weren’t just buying because we need to buy because we’ve got to place capital. They were buying because they understood the fundamentals. And I think we’re definitely in a market where fundamentals rule. Banks aren’t willing to lend outside of their rules that they’ve seemed to have abandoned in 21 and 22. And so we’re seeing a lot of that come back around where it’s back to fundamentals. The deal has to work in a good economy, a sideways economy, and you’ve got to have a plan for a bad economy. And I think that we’re seeing those of us that are still around have been through this before.

Yeah. I want to challenge you for a second. Let’s say the business completely goes away. You were going to start from scratch today. You get to keep all the knowledge that you’ve learned over the years. What would you focus on first to rebuild?

You just described the only reason why I want to believe in reincarnation, that I could come back as a younger version of me with all the knowledge I have. But the thing that I would do is I would become important to important people. I would find people that are doing deals. I would find people that had a need that were missing my skillset. And I would plug myself into their network and I would make them a lot of money. And out of that, I would have the ladder in front of me again to climb and to go, “Hey, I can help you with this.” Because when you are fundamentally necessary in somebody else’s success, your success is inevitable. And so being able to take my knowledge and the business goes sideways, I get blown up, my credit’s trashed, I can still be useful to somebody else in taking my expertise and applying it where they need it, where they may have blind spots, where they may have a lack of knowledge, and creating a spot for myself to be very important to them.

Yeah, I love it. What drives you to keep innovating and helping other investors succeed?

My ideal way to go would be to die with an LOI in my pocket. And I don’t want to do that anytime soon, but for me, it’s the deal. I love the art of the deal to steal someone’s book title. But being able to put something together that lives and breathes, something together that 200 people call home, that 25 businesses operate out of, that the investors that got involved are making money, the banks are getting repaid. To put that together is really awesome. And it’s something that really drives me to continue to grow because I want to make sure that my investors continue to get what they want, what we’ve agreed to out of this deal, or more if we can do it. And I want to see that kind of success to where we’re going full cycle on the deal and the people like, “Hey, you know what? You did a great job. Do it again. We’re not moving the money.” And just continue to have that happen. I also have quite a few employees that are the reason for my success that I want to see them succeed. I want to see at the end of the day, they win. They get what they want out of life. It’s not enough that one person becomes successful. You look at a guy like Elon Musk that lands rockets backwards. Well, I can guarantee you that may be his idea, but I can guarantee you he didn’t do it. He’s got a group of people that are wanting to be in that cutting edge environment and they’re getting what they want out of life. That’s why they’re working so hard and being so fanatical about what they do.

Yeah, for sure. For sure. Who’s been the biggest influence to you in the space over the years?

Obviously Robert Kiyosaki, Rich Dad, Poor Dad. But the funny thing for me is I grew up with those parents. I grew up with poor dad. My parents didn’t look like they had anything until they retired at 50 with cashflow. And everybody was like, “Where did you come from? You own these industrial buildings that nobody would’ve thought.” But I really like to be the dumbest person in the room. I like to be associated with people like Ken McElroy, people like George Gammon, people that are doing deals, that are getting things done. There’s a lot of people that I can learn from, and I really like to soak up all the knowledge because while I have my business, I have friends in Cincinnati that have a business of similar size. They deal with different issues, but they deal with ultimately core issues are the same. And there’s a lot I can learn from them. So being in groups like that really teaches me a lot. And being around other entrepreneurs, even if they’re not in the real estate space, really gives me a lot of knowledge and a lot of information because you can’t possibly learn everything in life on your own.

What would you say to someone that is getting into the game, or maybe they’re in the game already, maybe they’re already doing a couple deals a month that are scared to invest in themselves and join a mastermind or join a group of other investors or other business owners. What would you say to that person with that limiting belief that it’s not going to make them money?

Money runs from scared money. And if you’re not willing to invest in yourself, why would anybody else invest in you? I mean, it’s a necessity that you have the mindset that you have to grow. Even if it’s to learn that you don’t want to do that. I don’t enjoy property management, but I have a great group of people that love that. And without spending time with other mentors, with people that are way smarter than me that have 10,000 doors, I wouldn’t understand that piece. I wouldn’t understand how vital that piece is to my business and that there’s somebody out there that absolutely nerds out on property management. There’s somebody down the hall that absolutely, you want to make them happy, give them file boxes full of numbers. They think you just bless them from heaven. That’s not me, but to find those people and understand that they are in their element, that’s one of the biggest things I’ve taken away from a mastermind. And if you can’t get in the room with those people, you should always be in a room you don’t feel you belong in. You really should. Because if you are looking and you’re punching way above your way And you’re in a room where everybody else’s portfolio, they have single assets that are bigger than your whole portfolio. That’s the right room. That’s the right room because I’ve heard it said like this, you’re never going to get criticism at the gym from somebody that’s in shape. You’re never going to get criticism from somebody in real estate that has more than you. You’re never going to get criticism from somebody that is doing the things that you’re doing at a higher level. You’re only going to get criticism from those that want to drag you down.

You’re

Going to get criticism from the uncle that bought a duplex in 1973 and lost it during whatever financial crisis that happened. And now he never does real estate while he lives in a single wide trailer and drinks ripple all weekend. I mean, that’s not who is going to be in those rooms. And I have never walked into a room, introduced myself as the new smallest guy in the outfit and been criticized.

Yeah, I love it. Where can people learn more about you if someone is interested in getting involved with you and working with you? Where can they go and where can they get ahold of you?

Easiest way to find me is at shannonrobnett.com. You can see our past deals there. You could book on my calendar. I’m on all the social channels too, but all those handles are there. So if you just go to shannonrobnett.com, you’ll find us there.

Awesome. Awesome. Shannon, I appreciate you taking the time. Been wonderful chatting with you today. Everyone, thanks for watching and we’ll see you next time.

Appreciate what you do.